Peter Grandich on the Future of the TSXV. Resources Wire editor Kevin Michael Grace interviewed Peter Grandich March 14, 2013. In this second part of that interview, Grandich discusses the prospect for junior miners. (See Part 1 Gold Has Not Peaked HERE)

RW: The PDAC Mining Conference was in Toronto last week. I read all the stories coming out of it, and it was like hearing from members of the German High Command in January 1945. That’s how bad the sentiment was. We’ve been talking about a bottom in mining equities for quite some time, but every time we supposedly hit the bottom, there’s another bottom.

PG: The good thing going is that there is nothing good going at the moment. That is really the only positive thing I can say now. There is such an overwhelming amount of bearishness, and the last of the enthusiasm from people that kept hoping there would be a bottom has disappeared. I hear this from mainly retail investors, but I wouldn’t be surprised if professional investors feel the same way—even when there is a rally, they just want to get out of mining stocks and never see them again.

What we have going for us is that there have been, I think, 11 or 12 bear markets in juniors over the last 30 years, which is the amount of time I’ve been in this, although this one is clearly the most severe.

There was a sense of hopelessness—that we could never get back to former heights.

But those markets recovered, and so the question is whether this time the market will recover as well.

There have been structural changes that make it harder to operate, and these will probably cap the type of rebound we can have.

One thing is absolutely certain. For the rest of 2013, it will only be the type of deals that are closer to the top of the pyramid that can move forward. Companies with advanced-stage deposits or already transitioning into development or production will see the bulk of whatever dollars are available for financing. The smaller, earlier-stage exploration deals, no matter where they are, no matter what the structure of the company is pricewise or the amount of shares outstanding, will suffer greatly. Financing will go to those companies that can go into production, as opposed to the swing-for-the-fence companies in early-stage exploration.

I think we’ll see a one-tier recovery in the juniors. It’s sad to say, but a lot of them will cease to exist. That’s providing that the Toronto Stock Exchange doesn’t lower its listing standards so it can still collect money, so that that on paper these companies can exist but will have no real life outside of that.

RW: John Kaiser thinks a cull of 500 companies would be a good thing, but he adds that things have come to such a pretty pass it’s possible that the TSXV itself could die.

PG: I don’t know if it would die, but that’s what I was getting at. Knowing what I know about how exchanges are run, they will look to lower the standards to continue to bring fees in. Hundreds of companies will disappear, but some will find the old route that’s always been taken by companies: rollbacks, changes of names and new projects. But the difficulties those guys will have is there won’t be the ample refunding dollars that are normally available.

…..read pages 2 & 3 HERE

 As a general rule, the most successful man in life is the man who has the best information

Commodity super-cycles are defined as decades long price movements in a wide range of commodities. Super-cycles differ from shorter term fluctuations in three ways:

• Super-cycles are demand driven because they follow world GDP
• Super-cycles span a much longer period of time with upswings of 10-35 years, taking 20-70 years to generate complete cycles
• Super-cycles are observed over a broad range of commodities, mostly inputs for industrial production and urban development of an emerging economy

According to DESA Working Paper No. 110 ‘Super-cycles of commodity prices since the mid-nineteenth century’ published February 2012 by Bilge Erten and José Antonio Ocampo there have been 3.5 non-fuel commodity super-cycles from 1894 to 2009:

(1) from 1894 to 1932, peaking in 1917. The first long cycle begins in late 1890s, peaks around World War I, and ends around 1930s, and shows strong upward and downward phases.

(2) from 1932 to 1971, peaking in 1951. The second takes off in 1930s, peaks during the post-war reconstruction of Europe, and fades away in mid 1960s. It shows a strong upward phase but a weak downward one.

(3) from 1971 to 1999. The early 1970s marks the beginning of the third cycle, which peaks around early 1970s and turns downward during mid 1970s and ends in late 1990s. This cycle shows a weak upward phase and a strong downward one.

(4) 2001 still ongoing. The post-2000 episode is the beginning of the latest cycle, which has shown a strong upward phase which does not seem to have been exhausted so far.

The most recent boom (from 2001) in global economic growth or GDP, is unprecedented.

 “Global growth performance has been attributed as the single most important driver of commodity markets, being most pronounced for metals.

The basic premise is that commodity prices and world GDP have a long-term relationship over time because the robust growth episodes in the world economy are accompanied by a rapid pace of industrializa­tion and urbanization, which in turn require an increasing supply of primary commodities as inputs of production. However, there is often a lag between the investment in further commodity production and the actual results, which leads to price hikes in periods of strong world economic growth. As growth slows down and investment generates with a lag an increase in commodity supplies, the pressure on commodity prices eases. This hypothesis implies that the super-cycles in world output fluctuations generate corresponding super-cycles in real commodity prices.” DESA Working Paper No. 110

The real prices of energy and metals more than doubled from the lows of 1999 and late 2001/2002 to the high in 2008.

After suffering a severe correction in late 2008 (because of a global economic slowdown) and bottoming in early 2009 commodity prices started to recover – from the low in early 2009 commodity prices have been putting in higher highs and higher lows.

By comparing the charts above it’s obvious metals and agricultural have a long running integrated relationship with global GDP.

The phases and durations of previous super-cycles lead us to expect an upswing phase of between ten and thirty years. Being that we’re twelve years into this super-cycle is there more to come, or has supply caught up to a cooling global economy?

First let’s recap, commodity prices are dependent on:

• Demand side factors – the rapid pace of industrial development and urbanization in China, India, and other emerging economies
• Supply side factors – increasing costs due to resource depletion, resource nationalization, geo-political risk or lack of investment in capacity enhancement

To help us answer whether or not commodity price strength will continue we first turn to global growth predictions:

No one it seems is predicting a global no growth scenario. In fact, the prediction seems to be a call for average future global GDP to be at four percent with developing countries clocking in at a six percent average.

That’s a lot of continuing forward demand for commodities. Global demand seems to be well supported – economic growth in emerging economies will continue because of:

• Industrialization
• Urbanization
• Population growth
• Higher reserve price

“There is also the issue of the so-called reserve price (the highest price a buyer is willing to pay for a good or service). The reserve price places a cap on how high commodity prices will go, as it is the price at which demand destruction occurs (consumers are no longer willing or able to purchase the good or service).

For many commodities, such as oil, the reserve price is higher in emerging countries than in developed economies. One explanation for the difference is accelerating wage growth across developing regions, which is raising commodity demand, whereas stagnating wages in developed markets are causing the reserve price to decline. By implication, if nothing else, global energy, food, and mineral prices will continue to be buoyed by seemingly insatiable emerging-market demand, which commands much higher reserve prices.

Ultimately, emerging economies’ absolute size and rate of growth both matter in charting commodity demand and the future trajectory of global commodity prices, with per capita income clearly linked to consumers’ wealth. If people feel rich and enjoy growing wages and appreciating assets, they are less inclined to cannibalize other spending when commodity consumption becomes more expensive. They just pay more and carry on.” Dambisa Moyo, Commodities on the Rise

The facts are:

• Global economic growth is going to continue
• As long as developing countries commodity demand grows at a higher rate than global supply, prices will rise
• There will be no demand destruction in developing economies as prices rise

“Although it is perhaps difficult to believe at present, the third great economic super-cycle is underway. Since 2000, emerging market countries have been unlocking their growth potential and facilitating the catch up process. This will last until 2030 and will be commodity intensive throughout.” Neil Gregson, fund manager, JPM Natural Resources Fund

Supply-side challenges

There is a concern on the supply side, from the DESA Working Paper referenced above comes this cautionary note…

“As growth slows down and investment generates with a lag an increase in commodity supplies, the pressure on commodity prices eases.”

Now we get to the nut-crunching, the ‘rub’ as they say. Will the investments into ramping up commodity supply over the last ten or so years fill the gap, has supply caught up to demand?

As we’ve seen both demand and prices dropped temporarily but both demand and prices are quickly rebounding. That’s because, in addition to a continuing growing demand there are real deep seated structural issues on the supply side.

There are many serious concerns in regards to global metals extraction that we need to consider:

• Resource nationalism/Country risk, political instability of supplier
• A looming skills shortage
• Competition with Chinese mining investment, smaller areas open for exploration
• Low hanging fruit – the high quality large deposits have already been found, lower economic attractiveness of new projects, cost inflation
• Supply bottlenecks for much needed and scarce equipment
• The manipulation of supplies ie speculation and concentrated ownership of LME stocks
• Rising capex/opex, lack of financing options, capital project execution
• Lack of innovation and technological advancements
• Declining open pit production, ongoing operational issues, declining grades at older mines, more complicated metallurgy
• Lack of recognition for population growth, growing middle class w/disposable incomes and urbanization as on-going demand growth factors
• Environmental group and labor risks, mining unrest – lack of a social license to operate, incredibly difficult and lengthy permitting processes
• Climate change, accidents and natural disasters
• Lack of infrastructure or poor infrastructure access, attacks on supply infrastructure
• Price and currency volatility
• Fraud and corruption

A Few Rising cost and Resource Nationalism Examples

Brazilian mining giant Vale SA is likely to cancel a $5.9 billion potash project, has put mining projects around the world on review and took a $5.66 billion write down on assets.

Chile’s Copper Commission (COCHILCO) stated that the country will be delaying 11 out of 45 copper and gold mining projects or US$38.9 billion out of the total US$104.3 billion worth of projects.

Chile is the world’s top copper producer but the country as a whole is woefully short of power. The country’s power generation capacity currently stands at 17,000 megawatts. It is estimated that the country will need at least 30,000 megawatts of power by 2020 to keep up with the demand, the increased demand coming primarily from mining projects. Unfortunately the government only plans to add 8,000 megawatts between now and 2020 and there is serious opposition to these plans from environmental groups who have, so far, been wildly successful by suspending several key projects and more than $22 billion worth of power investment. The Chilean Supreme Court recently struck down the planned 2,100-megawatt, $5 billion Castilla thermoelectric power plant project, citing environmental concerns.

Codelco, the Chilean state owned copper company, and the world’s largest copper miner with 20% of global copper reserves, said that their 2012 first half copper production fell 6.4% because of lower grades mined. Codelco’s direct cash costs increased 27% year-on-year mostly because of paying higher prices for electricity from the drought stricken SIC grid.

 “On the demand side, new reactor construction continues in China and there are strong indications that additional plants will be coming back on line in Japan. On the supply side, about 24 million pounds of annual uranium supply will be removed from the market after 2013 with the end of the Russian highly enriched uranium agreement. We are also seeing new mine projects delayed or cancelled due to the prevailing uncertainty in our markets.”  Tim Gitzel, Cameco president and CEO

Antofagasta announced in that it was dropping its Antucoya project because of a 20 percent jump in costs, primarily due to higher energy costs. Antucoya was to come online in 2014.

Resource nationalism is increasing – Xstrata Plc’s plans to create a $5.9 billion copper-gold project in the Philippines has been halted because of a mining reform bill. The almost $6 billion Tampakan mining project has had its start of operations delayed until 2019 because of the political cost of doing business in the Philippines.

Antofagasta’s Esperanza Sur project capex went from under US$3 billion to US$3.5 billion

Inmet’s Cobre Panama project capex climbed to US$6.2 billion from US$4.8 billion, that’s a capital intensity north of $15,000/t

Teck’s Quebrada Blanca’s capex is US$5.6 billion. The amount of money required to build Teck’s new, and very large copper mine in a difficult environment, corresponds to a US$28,000/t capital intensity.

Peru is the world’s second biggest producer of copper and silver. At least 135 projects worth $7.5 billion have been delayed because of social unrest, mining investment in the country is expected to fall 33 percent in 2013 because of the unrest.

Barrick Gold, the world’s biggest gold miner, says its capital costs to develop a giant gold mine high in the Andes could reach $8 billion dollars and has delayed production. Barrick has lowered its copper production outlook for 2013 due to permitting delays at its Jabal Sayid project in Saudi Arabia.

Labor costs jumped 54 percent on a per hour basis in Argentina in 2012.

“In 2014, substantially all the mine production growth will come from new greenfield projects and these are subject to higher risk of production shortfall. New production from Africa, where infrastructure is less developed, also faces higher risk of shortfall particularly from power disruption.” FitchRatings, Base Metals Update

Vale’s New Caledonia (Goro) is many years behind schedule. The Goro nickel project in New Caledonia has become the bad boy poster child for the assortment of problems associated with HPAL technology. Minority partners Sumitomo and Mitsui have reduced their participation in the project.

Zambia is Africa’s largest copper producer (and wants to directly market its copper), in second place is the DRC, the world’s largest cobalt producer. The copper-belt which straddles Zambia’s and the Democratic Republic of the Congo’s borders is being tied up for internal development by the two countries. The DRC and Zambia are amending their mining codes to enable the government to raise taxes and implement a 35-percent minimum ownership threshold for state shareholding in projects.

“The spectre of resource insecurity has come back with a vengeance. The world is undergoing a period of intensified resource stress, driven in part by the scale and speed of demand growth from emerging economies and a decade of tight commodity markets. Poorly designed and short-sighted policies are also making things worse, not better. Whether or not resources are actually running out, the outlook is one of supply disruptions, volatile prices, accelerated environmental degradation and rising political tensions over resource access.”Chatham House, Resources Futures

Conclusion

There’s good news and bad news. First the bad news, consumers are going to be paying more for their very basics of survival because of a continuing price rise, across the board, in commodities.

The good news is you are being presented with an opportunity to get into commodity investing ahead of the herd. There are compelling reasons, and likely profitable ones, for an investment into commodities via junior resource companies at their current lows.

The two facts you need to have on your radar screen to be ahead of the herd are one, the world’s developing economies still have a lot of commodity intensive growth ahead and two, the best leverage to rising commodity prices has historically been investments into quality junior resource companies.

Are these two facts on your radar screen? If not, maybe they should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites, including:

WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTReport, Vantagewire, Indiatimes, ninemsn, ibtimes and the Association of Mining Analysts.

If you’re interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us atwww.aheadoftheherd.com

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.

Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

You know I’m a big fan of gold as an enduring stash of wealth. I’m an even-bigger fan of building wealth quickly while you wait for your core, longer-term gold holdings to pay off.

This means keeping some powder dry to be able to jump into faster-moving opportunities. And right now, the precious metals are exactly the place to invest for near-term gains as well as long-term security.

In my trading services, I’ve led my subscribers to some hefty, quick returns in small miners with big potential. But with the miners getting crushed in the early part of this year, we’ve broadened our search to find nearer-term returns … and still at a fraction of the cost of buying the metals outright.

With gold prices inching higher with the broader markets, it makes sense to look at another white-hot metal that hasn’t had its day in the sun yet. Even better, it just went on sale … but probably not for much longer.

Palladium pulled back sharply on Tuesday, closing at $734 per troy ounce, down from $761 the day before. Some of this stemmed from worries that the problems in Cyprus would cause a financial panic in Europe, thus deepening the continent’s recession.

Certainly, weak European auto sales are also part of the equation. As an industrial metal, palladium is widely used to clean car-exhaust fumes.

An average auto catalyst contains about 4 grams (0.13 troy ounces) of palladium or its more-expensive cousin, platinum. Carmakers typically use more palladium for gasoline engines and more platinum for diesel engines.

Palladium rose more than 11% in last year’s fourth quarter — as other metals were falling — as demand for auto catalysts soared to a record high.

And so, not surprisingly, news that new-car registrations in the European Union, a proxy for sales, fell 9.5% during the first two months of 2013 added to the metal’s sudden drop.

And that’s why (I think) we saw the ETFS Physical Palladium Shares (PALL) pull back sharply. Look at this chart  …

You can see that PALL pulled back to its recent uptrend, testing the 50-day moving average at the same time. That said, the uptrend seems to be holding. We’ll need to see more of a bounce to be sure. Yesterday, the forces of buy and sell seemed to be balanced.

I’ve seen some notes about gold’s relationship to platinum and palladium. Here’s a chart of theSPDR Gold Trust (GLD) / PALL ratio  …

I’m not necessarily keen on this ratio — the only ratios I watch in gold are its relationship to silver and its relationship to miners. Still, this ratio seems to matter to some investors.

We can see that the ratio rallied on the bad news out of Cyprus, but now it seems to be fading. That is bullish for palladium in relation to gold.

The takeaway is that palladium is still a better bet than gold going forward.

That doesn’t mean I’m bearish on gold. Nope. It just means that palladium holds more upside potential in the near term.

If the uptrend in PALL that I showed you in the previous chart breaks decisively, I will have to reconsider.

There are several ways to play palladium. You could buy a miner. But considering how miners throughout the precious-metals universe have been beaten up compared to the metals themselves, you may want to check out a palladium fund instead.

In addition to PALL, here are three more funds that hold the physical metal:

ETFS Physical White Metals Basket Shares (WITE): Average volume: 5,586. Expense ratio: 0.60%. Launched in December 2010, this fund offers bundled exposure to silver, platinum and palladium under one ticker. WITE dedicates about 60% of its total assets to silver, while platinum accounts for 30% and palladium fills in the last slot at 10%.

ETFS Physical Precious Metals Basket Shares (GLTR): Average volume: 16,295. Expense ratio: 0.60%. Launched in October 2010, this fund holds a basket of metals. It holds gold, silver, platinum and palladium in fixed weights, which works out to 0.03 ounces of gold, 1.1 ounces of silver, 0.004 ounces of platinum and 0.006 ounces of palladium.

VelocityShares 2x Long Palladium ETN (LPAL). Its average trading volume is 2,436 shares a day, which is low.

When you’re choosing the best way to trade palladium, pay close attention to how much exposure the fund has to the metal and to the amount of shares changing hands each day. A fund like PALL, for example, sees an average of 73,024 shares changing hands and is a pure play on palladium.

Remember, the better the trading volume, the quicker it is to enter and exit the position — and, in turn, the easier it is to get good prices when you’re buying and selling.

All the best,

Sean

P.S. My Global Resource Hunter subscribers have just closed out a string of positions with gains in the past month. Right now they are long palladium and sitting on some nice open gains in other precious-metals and natural-resources trades. It’s not too late to get in on the next round of profits — join them today by clicking here now.

Many more stories at Uncommon Wisdom here – http://www.uncommonwisdomdaily.com/

Rapidly advancing technologies are opening up astonishing sources of oil and gas all over the world. We are entering a new era of fossil fuels that is reshaping global economics and politics—and the planet.

The Chevron Field Above

Thanks to revolutionary, breakthrough drilling technologies, we have entered a new era of fossil fuels according to this article in the Pacific Standard, and the energy revolution is reshaping global economics and politics — and the planet:

In 1922, a federal commission predicted that “production of oil cannot long maintain its present rate.” In 1977, President Jimmy Carter declared that world oil production would peak by 1985.

It turns out, though, that the problem has never been exactly about supply; it’s always been about our ability to profitably tap that supply. We human beings have consumed, over our entire history, about a trillion barrels of oil. The U.S. Geological Survey estimates there is still seven to eight times that much left in the ground. The oil that’s left is just more difficult, and therefore more expensive, to get to. But that sets the invisible hand of the market into motion.

Every time known reserves start looking tight, the price goes up, which incentivizes investment in research and development, which yields more sophisticated technologies, which unearth new supplies — often in places we’d scarcely even thought to look before.

….read full article HERE

Selected sectors with favourable seasonality at this time of year remain attractive purchases candidates on weakness. The trigger could be additional weakness in the U.S. Dollar. If it happens, commodity stocks including metals & mining, energy, coal and steel stocks will continue to strengthen.

News that Cyprus was planning to tax bank deposits had an immediate impact on currency, commodity and equity markets around the world.

The Russian market was hit the most. Rich Russian investors are known to hold large deposits in Cyprus.

Strength in the U.S. Dollar Index following the news from Cyprus pressured copper prices.

The VIX Index spiked.

…….40 more Charts & Analysis HERE